Allegations Against Italy Analysts 'Entirely Founded'

The big ratings agencies have been blamed for much during the credit crisis, but they hadn't been raided by any of the countries they've threatened with downgrades, until Wednesday.

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Now three Standard & Poor's analysts and one from Moody's are under investigation by Italian police.

Prosecutor Michele Ruggiero, from the small Italian town of Trani, told CNBC that the four were being investigated.

Legal representatives at the agencies' Milan office, while they are not held directly responsible, need to be added to the probe according to Italian law.

"The probe was initiated by very specific complaints by consumer groups," Ruggiero told CNBC.

"Following complaints, prosecutors held consultations with government officials including Finance Minister Tremonti, who all distance themselves from rating actions and warnings by agencies, saying that their judgment does not reflect the fundamentals of the Italian economy."

He personally believes that the allegations are "entirely founded."

As under-fire Italian Prime Minister Silvio Berlusconi prepared to address his parliament about the state of the nation's economy on Wednesday, Italian police raided the Milan offices of Moody's and Standard & Poor's.

The raid came as both agencies pondered a further downgrade of Italy's sovereign debt after concerns about the country's debt-to-GDP ratio, the second highest in the euro zone after Greece.

It is in increasing danger of being lumped in with Greece, Spain, Ireland and the other euro zone economies perceived as vulnerable.

Rival Moody's said it "takes its responsibilities surrounding the dissemination of market sensitive information very seriously and is cooperating with the authorities."

Both agencies have raised concerns about Italy's debt and its exposure to contagion from the crisis in Greece. In contrast, Fitch Ratings, said last month that Italy's austerity package would help stabilize the economy.

The current investigation came after consumer groups objected to the agencies warning that they were considering downgrading Italian sovereign debt.

The Moody's analyst is being investigated over events in May 2010, while the S&P analysts' actions between 20 and 23 May 2011 and beginning of July 2011 are being probed.

Elio Lannutti, president of Adusbef, one of the consumer groups that sparked the inquiry, said: "The three 'sisters' – Standard & Poor's, Moody's and Fitch – are an erratic danger to state sovereignty in the areas of economics and finance".

Several mass selloffs on the Italian stock market in the past month show how shaky Italy's international reputation is at the moment.

Berlusconi insisted in his speech on Wednesday, after Italy was targeted by so-called "bond vigilantes" who drove yields on its bonds above the critical 6 percent level, that the country, one of the world's largest economies, is "economically and financially solid."

Despite this, speculation that the European Central Bank may have to intervene to help out Italy continues.

The country's size makes it both more important to the euro zone, and harder to bail out, than a smaller player like Greece or Ireland.